The 9 Steps To Financial Freedom: Steps 4-6

This week, The Simple Dollar is conducting a detailed review of Suze Orman’s The 9 Steps to Financial Freedom. This title has appeared on countless personal finance shelves over the past decade; does the content inside hold up? We aim to answer that very question.

Yesterday, we looked at the first three steps in The 9 Steps to Financial Freedom and discovered they mostly dealt with psychological self-analysis. Today, let’s look at the next three steps in a bit closer detail.

Step 4: Being responsible to those you love

This section is a detailed overview of what I would describe as “disaster planning;” in other words, insurance, wills, and trusts. The general point is that you should focus first on the people that are truly important to you and make sure that insurance and wills and such are set up so that if something happens to you, everything is taken care of in the way you truly want. The argument is that this allows you to feel much more confident about your place in the world.

The chapter is a pretty solid overview of the world of insurance and estate planning. Suze repeatedly encourages people to contact an expert for handling these things and not to trust her book, which is something I really appreciate. You should never trust a book to give you all of the answers when it comes to areas of the law that you don’t fully understand.

She makes very strong cases for revocable living trusts, long term care and disability insurance, and a large dollop of life insurance, all of which would only be triggered in the event of a major crisis. Some people would likely shrug their shoulders at this, but I think the point for her is that it is psychologically healthy to be able to look at the people you care for and know that if something disastrous were to happen to you, they would not be destitute. This is a great attitude if you can afford it.

Step 5: Being respectful of yourself and your money

The focus of this chapter is getting your own basic financial house in order: putting plenty into retirement, getting out from under any high-interest debt, and so forth. In essence, this chapter tries to ensure that you are on a level playing field with your long term future covered. She argues that this will, again, make you feel better about yourself and your money.

This chapter is pretty basic in terms of such rearrangement of personal finances, hitting upon the usual bromides: pay off your credit cards as soon as you can, take advantage of every dime of employee matching in your optional retirement plans (401(k), 403(b), and so on), and max out what you can put in a Roth IRA. In the last year, I’ve done two of the three of these and she’s right: it has been invaluable in improving my personal psyche. The only one I’m not doing yet is the Roth IRA, as my highest priority for the moment is a house down payment so I don’t have PMI or high interest rates.

Step 6: Trusting yourself more than you trust others

After two chapters of pretty solid individual financial advice, the sixth step focuses on building wealth for yourself. Basically, this chapter focuses on trusting yourself in terms of where to go next once your financial house is in order.

Suze is a big proponent of complete trust in your gut feelings, and most of this chapter focuses on that, particularly in terms of how you can use that gut feeling to guide your investing. The whole point of this chapter, in fact, is that you should become as comfortable as you can with your money so that you can follow your pure gut instinct about what’s right for you, which makes a lot of sense. She even provides a seven page questionnaire that can guide you along this path of comfort.

One portion of this section that made me somewhat uncomfortable is her repeated hinting that one should really get a financial planner, which seems to contradict most of what she says. For example, she continually points out that most index-based mutual funds beat managed mutual funds, but in the next breath she encourages readers to seek out a financial planner for advice. If you’re investing the time to read this book, wouldn’t it make sense to also invest the time to do the planning yourself?

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